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Philanthropy’s Essential Role in K-12 Edtech and Strategies for Impact

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Although “Record Levels of Edtech Funding” has been a recurring headline, there hasn’t been a focus on the role of philanthropy as the majority of funding is coming from the private sector. From our front line view as an active edtech seed investor, we see the need for diverse forms of capital to realize the full potential of technology to differentiate instruction and drive improved learning outcomes.

With their long view of the market and a focus on student achievement, foundations are uniquely positioned to fill existing gaps in edtech funding. For example, additional sources of capital are needed to provide high quality technology tools for students with specialized needs and underserved backgrounds.

So what is preventing foundations from funding edtech? How much money have foundations recently contributed to edtech? Which foundations are leading the way and what innovative approaches are they taking? Find out in Philanthropy’s Essential Role in K-12 Edtech and Strategies for Impact, an analysis of the current state of major foundations and K-12 edtech funding.

We hope foundations will use this research to find ways to support the K-12 edtech ecosystem given their mission and capacity.

Thank you to collaborators Dan Runcie, Vivian Wu, and Chian Gong. Thanks also to Diana Barthauer for support with graphic design.

Published in: Education
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Philanthropy’s Essential Role in K-12 Edtech and Strategies for Impact

  1. 1. Philanthropy's Essential role in K-12 Edtech & Strategies for Impact October 2014
  2. 2. Technology is Technology is enabling the shift from one-size-fits-all to individualized instruction Technology helps teachers do more by creating new learning environments that leverage teacher talent of teachers agree that technology use in the classroom can enhance student learning Sources: http://gettingsmart.com/wp-content/uploads/2012/12/Digital-Learning-Deeper-Learning-Full-White-Paper.pdf and BrightBytes Survey
  3. 3. Majority of Edtech Funding is from Traditional Investors, but gaps exist Private capital accounts for of K-12 edtech funding. It is concentrated at the early stages. Funding gaps exist at the later stages, within specialized markets, and for school solutions. Source: h"p://www.newschools.org/blog/closer-­‐look-­‐2013
  4. 4. Philanthropic capital is needed to realize the full potential of edtech Traditional investors are unlikely to provide sufficient funding for high quality tools for Special needs and underserved students. With their focus on impact and long view of the market, foundations are uniquely positioned to fill edtech funding gaps.
  5. 5. Executive Summary of K-12 edtech ? How can Foundations increase Their Support • Limited expertise in for-profit investing • Belief that VCs are better equipped • Preference to fund non-profit orgs. • Restrictions and challenges with investing vehicles • Lack of alignment with mission/strategy • Invest through intermediaries • Target underfunded areas • Conduct RFPs/Challenges • Fund research and efficacy studies • Develop an accelerator partnership • Fund districts for specific edtech usage
  6. 6. AGENDA Funding landscape of foundations and K-12 edtech since 2013 Barriers to foundations funding edtech Next Steps for foundations interested in edtech Potential Solutions to address edtech funding barriers
  7. 7. Majority of Foundation edtech funding has been to Non-Profits and in the form of grants 51% of investments are in Non-profits 80% of invested dollars are in the form of grants Source: Publicly available data from grants databases of various foundations: http://bit.ly/1s2hsD1 Note: Does not include LP positions in for-profit edtech funds 1. Funding Landscape
  8. 8. Largest category of Foundation edtech funding is School Operations $5M $0.5 M $4M 1. Funding Landscape $8M $21M $4M $1M $6M Curriculum Products Teacher Needs School Operations Sites and Resources Resource Discovery, Curation & Lesson Planning Games College and Career Intermediary Source: Publicly available data from grants databases of various foundations: http://bit.ly/1s2hsD1 Note: Intermediary category does not include LP positions in for-profit edtech funds Categories based on EdSurge Index- https://www.edsurge.com/products/
  9. 9. Foundations Have Varying levels of interest and activity in funding K-12 edtech Trailblazers Enthusiasts Up-And-Comers Thinkers No Interest** My foundation is an active investor in K-12 edtech and it’s part of our strategy 4+ 2-3 1-2 0 0 I am interested in K-12 edtech and am finding ways to align it with my foundation’s overall strategy My foundation has made a few one-off investments in K-12 edtech, but it is not core to our strategy I have heard that other foundations invest in K-12 edtech, but I do not know where to start I am interested in supporting education, but not K-12 edtech *Since 2013 **Foundations with “No interest” were not included in this research 1. Funding Landscape
  10. 10. 1. Funding Landscape
  11. 11. Trailblazers & Enthusiasts have Funded edtech through a variety of channels Grant Request for Proposal Mission Related Investment Program Related Investment Research/ Efficacy Study Limited Partner Investment Bill and Melinda Gates Foundation ˜ ˜ ˜ ˜ ˜ ˜ Michael and Susan Dell Foundation ˜ ˜ ECMC Foundation ˜ ˜ ˜ Joyce Foundation ˜ ˜ W.K. Kellogg Foundation ˜ ˜ ˜ 1. Funding Landscape
  12. 12. AGENDA Funding landscape of foundations and K-12 edtech since 2013 Barriers to foundations funding edtech Next Steps for foundations interested in edtech Potential Solutions to address edtech funding barriers
  13. 13. We asked Foundations what prevents them from funding edtech and this is what we 2. Barriers heard…
  14. 14. Limited expertise in for-profit investing Foundations want scalable and sustainable solutions [in edtech], but have a lack of knowledge on how to do it. 2. Barriers
  15. 15. Belief that traditional investors are better equipped VCs start out with much more money dedicated to this area, so it doesn’t make sense for foundations to give small amounts and ask companies to pitch them. 2. Barriers What impact can a foundation have on such a large market with relatively small philanthropic investments?
  16. 16. Preference to fund non-profit organizations Markets direct for-profit edtech companies away from their focus on impact. Foundations don’t want to be perceived as making returns off of schools/teachers/ students. 2. Barriers
  17. 17. Restrictions And Challenges with investing vehicles Studies show that organizations are more successful when they receive general operating support, but grants are restricted for a particular purpose. A PRI IS a hassle and requires that a foundation bring in lawyers. 2. Barriers
  18. 18. Lack of mission & Strategy Alignment Many edtech investments help the education sector at-large, but few investments are targeted at a foundation’s specific region and/or populations. 2. Barriers
  19. 19. AGENDA Funding landscape of foundations and K-12 edtech since 2013 Barriers to foundations funding edtech Next Steps for foundations interested in edtech Potential Solutions to address edtech funding barriers
  20. 20. Investing through intermediaries allows foundations to learn how to invest in edtech Can leverage existing expertise Can “sit at the table” and learn the investing process 1- Nellie Mae is an LP in Rethink Education 2- ECMC is an LP in New Markets Venture Partners and Rethink Education 3- MSDF, Gates Foundation, Sobrato Family Foundation, and J.A. and Kathryn Albertson Foundation have funded the NewSchools Seed Fund 3. solutions Not building in-house capacity Investments not as tightly aligned to strategy and metrics
  21. 21. Targeting underfunded areas addresses needs unlikely to be met by traditional investors Less overlap with VCs as special populations written off as too niche Opportunity to focus edtech on specific populations and go deeper Can signal market opportunities 1- Michael and Susan Dell Foundation gave a grant to Ellevation to adapt their English Language Learner product for Texas standards/regulatory processes 2- Stuart Foundation gave a grant to Goalbook to improve the educational opportunities for students in foster care 3. solutions Overcapitalization early on could lead to unsustainable business models
  22. 22. Conducting RFPs/challenges is a great way to Identify and select Mission Aligned solutions Defined goal of intended impact Selection of best solutions Surface unknown opportunities 1- Gates Foundation launched the Literacy Courseware Challenge for the creation and development of web-based literacy courseware 2- Robin Hood Foundation launched the College Success Challenge to fund the development of solutions to address remedial graduation rates 3. solutions Limited only to applicants Could force early stage startups to expend all resources on the challenge Requires expertise in crafting challenges and capacity to run them
  23. 23. Funding Research and efficacy studies provides objective metrics and benefits the entire sector Studies benefit entire field Can align study to mission and strategy Noyce Foundation funded a controlled experiment to determine if Motion Math improves a child’s fractions knowledge and attitudes 3. solutions Unintended results from study Requires different methods like Developmental Evaluation May not have applicability/scalability to other regions or populations
  24. 24. Developing Accelerator partnerships leverages expertise and builds edtech network Selection of best applicants Partners typically complementary 1- Zynga.org partnered with NewSchools to launch Co.lab, an accelerator for startups using the power of games to transform education 2- Foundations have supported edtech accelerators like Imagine K-12, LearnLaunchX, 4.0 Schools and Kaplan TechStars 3. solutions Risk of brand image with partnership Cost of physical space/resources Needs to be targeted or may not provide enough value to startups
  25. 25. Funding districts for specific edtech usage allows for targeted impact in A region Can fund a targeted region or district of interest Can influence districts to improve procurement processes More tangible student outcomes J.A. and Kathryn Albertson Foundation funded a statewide pilot of Khan Academy in Idaho 3. solutions Only expands existing edtech vs. driving new innovation Can distort demand and alter edtech product design May not be sustainable since funding has to be renewed
  26. 26. AGENDA Funding landscape of foundations and K-12 edtech since 2013 Barriers to foundations funding edtech Next Steps for foundations interested in edtech Potential Solutions to address edtech funding barriers
  27. 27. Foundations at all interest levels can take steps to accelerate edtech innovation 1 - Identify barriers specific to your foundation and determine solutions which are most suitable given your mission and capacity 2 - Build knowledge of impact investing vehicles: PRI, MRI, Expenditure Responsibility http://www.forbes.com/sites/ashoka/2013/02/21/why-program-related-investments-are-not-risky-business/ http://www.nafoa.org/pdf/Mission-Related-Investing.pdf http://www.irs.gov/Charities-&-Non-Profits/Private-Foundations/Grants-by-Private-Foundations:-Expenditure-Responsibility 3 - Work with other funders to develop investment frameworks for broader publication/implementation: Mission Investors Exchange- https://www.missioninvestors.org/ 4 - Stay on top of trends in edtech: https://www.edsurge.com/ http://www.edtechmagazine.com/k12/article/2013/06/2013-honor-roll-edtechs-must-read-k-12-it-blogs http://patricklowenthal.com/2013/11/educational-technology-related-education-conferences/ 5 - SIGN UP to learn more and connect with foundations interested in funding edtech: https://docs.google.com/forms/d/1481dz_5DsJM0aaZISqW8ceAHXhVx4vqYOnVfNqd6HNE/viewform?usp=send_form 4. Next Steps
  28. 28. Recent Articles How Foundations Can Engage the Startup Community to Accelerate Impact-https:// www.facebook.com/1776dc/posts/343575895796196 Boosting Impact: Why Foundations Should Invest in Education Venture Funds- http://cdno.gettingsmart.com/wp-content/uploads/2014/03/Boosting-Impact-Final.pdf A Tale of Different Deals: Diving into Early Stage Edtech Investments-https:// www.edsurge.com/n/2014-05-05-a-tale-of-different-deals-diving-into-early-stage-edtech-investments The Re-Emerging Art of Funding Innovation-http:// www.ssireview.org/articles/entry/the_re_emerging_art_of_funding_innovation 4. Next Steps
  29. 29. Thank you to the following leaders who took the time to make this research possible Bill & Melinda Gates Foundation: Kai Kung, Stacey Childress Michael & Susan Dell Foundation: Micah Sagebiel The Joyce Foundation: Matt Muench Nellie Mae Education Foundation: Nick Donahue ECMC Foundation: Josh Susser V3 Consulting: Victor Vuchic
  30. 30. Appendix Foundation Snapshots
  31. 31. The Gates Foundation has led the field in approaches to edtech funding Interview Insights: RFPs are an investment vehicle for the impact that a foundation wants to see and create. PRIs and MRIs are often misunderstood in the foundation field. New Venture Fund $12.6M grant Pacific Charter School Development $4M grant Summit Public Schools $500k grant Appendix BloomBoard $3M PRI BrightBytes $330k RFP grant LearnZillion $1.7M grant
  32. 32. MSDF has made several edtech grants and made its first PRI in 2011 Interview Insights: One area of focus is on promising Series A companies that might use a PRI to attract traditional investors. MSDF seeks opportunities to serve as a market signal for quality of potential student outcomes and strong business opportunity. As MSDF launched its U.S. PRI use in 2011, it decided not to build out a dedicated PRI team, but to integrate the practice into existing program officers’ tool kit. Urban Teacher Center $1M grant Philadelphia School Partnership $4.5M grant Digital Promise $300k grant Appendix NewSchools Venture Seed Fund $3M grant Schoolzilla $250k grant Mastery Connect $1.5M Series A- PRI $1M Series A1- PRI
  33. 33. ECMC has made edtech investments through the endowment to support its mission and generate return Interview Insights: Intermediaries are a good way to invest endowment dollars. PRIs can be used to invest at earlier stages (seed) and MRIs used for later stages. California Student Aid Commission $98M grant Appendix Rethink Education LP position New Markets Venture Partners LP position Quad Learning Series B
  34. 34. The Joyce Foundation has funded a few edtech companies and is developing an overall strategy Interview Insights: It’s unclear whether PRIs can be an efficient investment vehicle if you’re not building a full portfolio. Absent an approach to direct investing in companies providing products/services, supporting the ecosystem through funding research and infrastructure organizations (like Digital Promise) can have broad impact. Intermediaries and traditional investors are better equipped to do diligence than building that capacity in-house. WestEd $1.2M grant Advance Illinois $1M grant Appendix EdSurge $165k research grant SRI $1.1M efficacy study
  35. 35. Nellie Mae Education Foundation’s Approach is to invest as an LP in education venture funds Interview Insights: When investing as an LP in an education fund, there may be more risk on profit, but there is better alignment with the foundation’s mission. Department of Education $230k grant Appendix Rethink Education LP Position

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